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Health and Social Care (Community Health and Standards) Bill

Health and Social Care (Community Health and Standards) Bill

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Standing Committee E

Tuesday 3 June 2003

(Afternoon)

[Mr Peter Atkinson in the Chair]

Health and Social Care
(Community Health and Standards) Bill

Clause 17

Financial powers

Amendment proposed [this day]: No. 263, in

    clause 17, page 7, line 34, after 'money', insert 'only'.—[Mr. McCabe.]

4.30 pm

Question again proposed, That the amendment be made.

The Chairman: I remind the Committee that with this we are discussing the following amendments:

No. 264, in

    clause 17, page 7, line 34, at end insert 'direct'.

No. 18, in

    clause 17, page 7, line 36, leave out subsection (2) and insert—

    '(2) The trust shall have no constraints on its right to borrow except as outlined in subsection (3)'.

No. 161, in

    clause 17, page 7, line 36, leave out subsections (2) and (3) and insert—

    '(2) The trust will have certain limits on its rights to borrow, as outlined in subsection (3).

    (3) The trust's borrowings shall not endanger, or incur the loss of protected property, as outlined in section 16.'.

No. 19, in

    clause 17, page 7, line 38, leave out subsection (3) and insert—

    '(3) A trust's total borrowings shall not exceed 100 per cent. of its total revenues without the approval of the regulator.'.

No. 146, in

    clause 17, page 7, line 38, at end insert—

    '(3A) In calculating these limits, no regard shall be had to any borrowing incurred under the Private Finance Initiative.'.

No. 21, in

    clause 17, page 8, line 6, at end add—

    '(7) A foundation trust shall show the total value of all its liabilities on its balance sheet.'.

For the assistance of Members, the selection list for tomorrow's sitting is now available in the Room. I remind the Committee that all questions necessary to dispose of proceedings on part 1 will be put at 7 o'clock this evening. If we have a Division in the House during this sitting, which we no doubt will, I will suspend the sitting for a quarter of an hour. If there is a second Division, I will suspend for 30 minutes, and so on.

Mr. Stephen Pound (Ealing, North): On a point of order, may I apologise unreservedly to you, Mr. Atkinson, for not being present just before 1 o'clock to move the amendment that I tabled, which my hon. Friend the Member for Birmingham, Hall Green (Mr.

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McCabe) generously moved? Unfortunately I was being made up for Sky News at the time. It takes a long time to make me passably human, so I could not leave in the middle.

Mr. Simon Burns (West Chelmsford): Further to that point of order, may I seek your advice, Mr. Atkinson, on whether it is more important to be in a television studio or to attend to one's parliamentary duties in a Committee?

The Chairman: Fortunately, it is not for the Chair to rule on that question. The Committee has heard the apologies of the hon. Member for Ealing, North (Mr. Pound), although the Chair of course deprecates occasions on which hon. Members are not present to move amendments in their name.

Chris Grayling (Epsom and Ewell): Welcome back to the Chair after recess, Mr. Atkinson. Those two points of order have given me the opportunity to pick up where I left off this morning, because a moment ago the Room was lacking Liberal Democrats, but now the hon. Member for Oxford, West and Abingdon (Dr. Harris) has arrived, so I can finish answering the point that he raised in an intervention just before we broke for lunch.

To recap briefly, the amendments to which I was speaking concern the powers and abilities of trusts to borrow and how they report such borrowings. Amendments Nos. 18 and 19 are designed to change the basis on which borrowing limits are applied to foundation trusts. Amendment No. 146, which the hon. Gentleman questioned me about, is designed to ensure that foundation trusts that have in recent years been part of major PFI schemes, perhaps to build a new hospital or new wing or to develop a new dimension of their services, are not disadvantaged when the new arrangements are put in place.

If current PFI financing is set against a trust's total liabilities when its right to borrow further is assessed, a significant number of our leading hospitals may be unable to take advantage of the extra borrowing rights. The odd situation might arise whereby hospitals with new buildings would be able to borrow no more for extending services, and those without new buildings would not be able to take on the substantial financing that they would need to build them, so there are some contradictions in the provisions. The amendment's purpose is to ensure that if a hospital had just opened a brand new PFI wing that took it over the borrowing limit that I expect to be set out in the prudential code, it would not then automatically be subject to a total moratorium on buying new scanners, for example.

Dr. Evan Harris (Oxford, West and Abingdon): I do not claim to be an expert on the matter, but is the hon. Gentleman concerned that those hospitals would be treated relatively badly because they would have to finance the pay-off, whereas trusts in a different position would have capital charges to pay back? Is there a way of ensuring that the capital charges in a public scheme are treated in the same way as the costs in a private finance scheme? That might get round the

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problem that simply because something was privately financed, the hospital might not qualify for prudential borrowing if those liabilities were counted.

Chris Grayling: That will depend very much on the trust's level of capitalisation and the final public capital totals that the Government will set for trusts that do not have private sector liabilities. I look forward to hearing the Minister's explanation of how this will be handled. Let me explain my concern. If a brand new hospital has just spent £300 million, it will have to repay that money, but is it the case that, because that total liability is vastly in excess of the prudential borrowing codes level, it will have no further powers to borrow, even for a small specific purpose?

The Chairman: Order. I remind the hon. Gentleman and other members of the Committee that they should address the Chair. I say that not for my benefit, but because Hansard staff have difficulty hearing them if they address the other end of the Committee.

Chris Grayling: I apologise for that, Mr. Atkinson. I hope that I have answered the question asked by the hon. Member for Oxford, West and Abingdon.

The last amendment in the group has a simple purpose with regard to however liabilities are handled in accounting terms. This is the important distinction between the amendments. We want to understand how PFI will be applied to the prudential code, and to ensure that a hospital with a PFI legacy is not disadvantaged by the code. Whatever the situation and however the finances are accounted, we believe that all liabilities—conventional on-balance-sheet liabilities and what might have been set up as off-balance-sheet liabilities—should none the less be reported back, so that the full, true financial picture of the trust is reflected in the report that it makes to its members and the public as a whole.

Mr. Andrew Lansley (South Cambridgeshire): In the next group is amendment No. 124, on which I should like to make a few remarks, if I may—[Interruption.] I shall wait for the next group if that is more convenient.

Dr. Harris: I risk to speak to amendment No. 161, which is in my name and those of my hon. Friends. I expected to contribute to an ongoing debate on amendments Nos. 263, 264 and, to a certain extent, 265. [Interruption.] I expected to speak about amendments Nos. 263 and 264, but if the hon. Member for Ealing, North (Mr. Pound) is going to make a contribution on those, I shall wait to hear him speak.

The clause is interesting, because it defines how free, in borrowing terms, foundation trusts will be. We have generally taken the view that, if trusts are to have proper decentralisation and financial freedom, it seems wrong unnecessarily to limit their scope to borrow, because the freedom then becomes a phantom, and the idea of the experiment with providers is to ensure that there is a reasonable approach.

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We thought that the simplest way and the minimum required would be for the regulator to set as a limit the borrowing that, in his opinion, would not threaten the asset that he considers it necessary to protect, under clause 16. That is a prudential borrowing code. It does not have upper limits or what are, by necessity, artificial limits. It is much clearer, because in the end—[Interruption.] The Minister thinks that it is not clearer. Perhaps because our code is less defined—I accept that—it may not be as clear, but it would certainly provide more latitude. If one is to encourage the use of the freedom to borrow and to identify ways of levering into the health service alternative means of finance as well as of management, the Secretary of State or the Prime Minister, rather than the Chancellor of the Exchequer, should set out the approach to the limits on borrowing.

Our amendment offers the logical minimum restriction. It states:

    ''The trust's borrowings shall not endanger, or incur the loss of protected property, as outlined in section 16.''

That would be for the regulator to decide. That is the sort of requirement that operates in organisations outside the public sector. True voluntary organisations and mutuals have a duty to ensure that they do not put at risk that which is essential to their asset base. I should be interested to hear why the Minister adopted his approach. Even though we have concerns about the Government's model, the imposition of foundation hospital status and some of the issues relating to the winners and the losers, we do not oppose the greater freedom to borrow for this sort of model. We have tried to show that with this probing amendment.

We had an interesting interchange with the hon. Member for Epsom and Ewell (Chris Grayling) about the consistency of his amendments and the nature of the probing amendment on private finance, which is a big issue. A number of hospitals are now saddled, some would say blessed, with the need to pay back at much higher rates than could be obtained from public capital the costs of a private finance scheme. Many have insufficient beds to provide the capital that they need. Many hospitals with big PFI projects will be keen to get foundation status. It would be interesting to hear how the Government plan to treat that because it could put a brake on the ability to borrow. It is best if I leave it there.

 
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